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403(b) and 457 Retirement plans for medical and academic professionals.

If you work in a Hospital, University or College, you have more choices than most employees in the private sector.  Retirement plan options for medical and academic professionals include state pensions, 403b, 457 or 401k or some combination of the two.

 In this article we take a closer look 403b and 457 retirement plan options.

 A 403(b) is a defined contribution retirement plan available for 501(c)(3) employees of educational and non-profit organizations. Employee contributions are deducted from their pay check through a SRA (salary reduction agreement) by the employer’s payroll and benefits department.

  • Contributions can be made either pre-tax through a traditional 403(b) or post-tax through a Roth 403(b)
  •  Investment choices may be through annuities and/or mutual funds
  •  Contribution options include:
    • Max contribution annually for 2018 - $18,500
    • Catch up additions 50+ for 2018 - $6000
    • 15-year rule special catch up: Employee with 15 years of service
      • Additional $3,000 per year up to $15,000
      • Must be used before taking 50+, $6,000 option
  •  Loans available if the plan allows
    • 50% of balance up to $50,000
  •  Distributions
    • 10% tax on distribution prior to age 59 ½ unless an exception applies
      • Taxed at ordinary income for non Roth 403(b)

 A 457 is a deferred compensation retirement plan available for government workers and employess of a 501(c)(3) non-profit organization. It has similar characteristics and investment options as the 403(b).

  •  Contributions can be made either pre-tax through a traditional 457 or post tax through a Roth 457
  •  Investment choices may be through annuities and/or mutual funds
  •  Contribution options include:
    • Max contribution annually for 2018 - $18,500
    • Catch up additions 50 and over for 2018 - $6000
    • 3 years prior to retirement double contribution limit
      • can’t use 50+ catch up at same time
  •  Loans available if the plan allows.
    • 50% of balance up to $50,000
  •  Distributions
    • No early withdrawal penalty
      • Taxed at ordinary income for non-Roth 457
    • Plan distribution cannot be made before one of the following
      • Separation of service
      • Age 70 ½
      • Unforeseeable emergencies

 Details to remember:

  •  It is possible to maximize contributions to both 403(b) and 457 accounts
  •  Contingent deferred sales charges (charges attached to an annuity)
    • Some accounts invested in annuities may have a charge for early withdrawal or transfer unless there is a separation of service.
  •  Fixed account withdrawals may have rules
    • Some fixed or guarantee accounts may not allow you to withdrawal account balance in entirety.

 What you should do before opening an account:

  1. Review your options: Each plan has different options, investments and details.
  2. Compare benefits to determine the best option for your situation, level of risk and timeline.
  3. Contact retirement plan venders to ask about their level of service, investment options and fees.
  4. Contact a financial professional to help you through the process.

 Chip Hill is the founder of Chill Financial Group helping members of the medical and academic communities make good financial decisions.

 Want some help with your retirement plan. You can schedule a time to talk here

 

Chip Hill, AAMS®
Financial Advisor
155 W Bell Ct
Lexington, Ky 40508
Cell: 859.948.8717

Investment adviser representative registered representative of, and securities and investment advisory services provided through Voya Financial Advisors, Inc. (member SIPC).